Whitbread is to concentrate on developing Premier Inn after confirming that its Costa coffee chain is to be de-merged from the business.

The break-up is expected to be completed within two years.

Premier Inn, the UK’s largest budget hotel chain, is being primed for expansion in Germany with a deal to acquire 19 hotels with 3,100 rooms. This will enable Premier Inn to expand to at least 31 hotels with 5,720 rooms in Germany by 2021.

The disclosure came as Whitbread reported a 6.4% rise in annual pre-tax profits to £548 million.

Underlying profits at Premier Inn came in at £498 million and £159 million at Costa.

Premier Inn saw revenue grow by 5.2% year-on-year to more than £2 billion with 97% of guests booking direct. This followed 13,700 new rooms being added to the portfolio in the UK over the past three years to 72,500, with a target of 85,000 rooms by 2020 and 100,000 beyond that date.

Whitbread chief executive Alison Brittain said: “At the point of separation, both businesses will be able to take advantage of the structural growth opportunities available to them in the UK and internationally.

“Costa will become a listed entity in its own right and the clear market leader in the out-of-home coffee market in the UK.

“Costa will also be well positioned to build further on its strong international foundations with growth expected in China and Costa Express.

“Whitbread will remain the owner and operator of the UK’s most successful hotel business.

“A key priority will be continuing the development of Premier Inn by creating a business of scale in Germany to replicate the success we have in the UK.”

She said both would soon be “businesses of sufficient strength, scale and capability to enable them to thrive as independent companies”.

The managing director of Costa Coffee is former Royal Caribbean International senior vice president international, Dominic Paul, who joined two years ago.

The long-expected separation “will allow both Premier Inn and Costa to maintain momentum, complete critical and complex transformation and infrastructure objectives, and drive international expansion,” Brittain added.

“The management team and I are excited that the strategy we are executing will give us the opportunity to create two high-quality independent businesses that will create long-term value for our stakeholders.”

Brittain said: “Given recent economic and industry data, we do remain cautious on the consumer environment, especially on the high street, which we expect to remain challenging in the near term.

“The combination of our commitment to the investment programme and the current UK consumer environment naturally means our near-term profit growth may be lower than in previous years.

“However, I am confident that this strategy will deliver long-term sustainable growth in earnings and dividends, combined with good return on capital for years to come.”